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To Hire a Third Party Logistics Company Or To Not Hire a Third Party Logistics Company…THAT is the Question

third party logistics company

Third Party Logistics providers (3PLs) have grown tremendously in recent years as the dynamic of getting goods to market has evolved. In days past, entering a market meant making a significant investment in facilities and infrastructure to ensure the effective delivery of your product. No more. Today, 3PLs can handle every step of the process for you, liberating your time and resources to focus on selling your product.

The 3PLs of today can provide a much broader range of services than they used to. It used to be that their primary focus was on warehousing and shipping, so if you sent them your product they would store it and ship it for you. Now, 3PLs can handle almost your entire business. This includes not only the complete supply chain cycle, but also such functions as customer service, order management, sales support, e-commerce and IT integration. In fact, there are very few aspects of your business that a 3PL can’t take care of for you and in many cases, they have technology and resources that you may not, so you get the benefit of top-tier tech without the investment (which is fully the case at Cerasis with our in-house technology team).  However, before we get into if you should hire a third party logistics company or not, what do shippers want in a 3PL to begin with?

What do Shippers Want from a Third Party Logistics Company?

According to the Capgemini Annual 3PL Study for 2014, their 18th such study,  shippers value the ability to provide continuous improvements most (55%), followed by experience in the shipper’s industry (49%) and established ongoing relationship (42%).  Further, Shippers appear to be seeking strategies to control costs while striving for optimal 3PL
relationships by seeking a balance between centralization and decentralization of their sourcing decisions.

Collaboration also is something that shippers want more and more of, but are also seeing that desire of collaboration to materialize. According to the study, the majority of shippers and 3PLs say their relationships have grown more collaborative over the past three years, with shippers even more likely than 3PLs to say they are much more collaborative.

third party logistics company collaboration chart

Collaboration opens the door for more strategic relationships among shippers and 3PLs. In order to attain more highly functioning and cost effective supply chains, shippers need strong, lengthy and partner-focused relationships with their 3PLS and 4PLs.

Given the available capabilities of a third party logistics company, this begs the question:

Should you be utilizing a Third Party Logistics Company or Not?

The answer of course, is that it all depends . It depends on a multitude of factors, not the least of which include the stage your business is in (and we suggest you use this handy 3PL checklist to understand your needs), the amount of existing infrastructure you have and the functions that you require to service your customers. While it doesn’t make sense in every situation, the benefits of using a third party logistics company can be staggering.

Here are 5 quick benefits you can realize from using a third party logistics company (but know there are MANY benefits on a micro level, these are just the top 5 on a macro level):

  1. Expertise: A third party logistics company handles logistics for a living…as an entire business model. That’s all they do. Believe it or not, there are some traffic or transportation managers who are not experts in logistics, so why not let the experts handle all the details?
  2. Efficiency: Not only does a third party logistics company have the expertise, they also have the infrastructure and technology to be really good at what they do. This translates to higher service levels to your customers and very likely, a cost savings to you. Higher quality. Lower cost. The Holy Grail of business.
  3. Technology: Since 3PLs usually have the latest technology, this gives you the benefits without having to make the capital investment. Win, win. However, a caveat here, if the third party logistics company is offering you a TMS software and other freight technology, make sure the 3PL is not outsourcing this technology themselves to a software provider. This can be problematic when you want updates to the technology as a user. Dedicated technology teams and 3PLs that provide an in house technology team who develops the TMS themselves will provide the biggest value.
  4. Core Competency: Utilizing the resources of an expert frees up your time and financial resources to focus on what you do best. You can have confidence that your logistics are being taken care of so you can focus on growing the enterprise.
  5. Scalability: 3PLs are almost infinitely scalable. If your business triples in 18 months you don’t have to rush to secure new facilities, buy new equipment or hire and train staff. It simply takes one phone call to reach out to the third party logistics company to secure new rates as you open up more shipping lanes or add another login to the transportation management system as you bring on new locations. We have seen it thousands of times in our long time customers over the last nearly two decades.

“But…..I can do it cheaper/better myself…I don’t Need an Outside Third Party Logistics Company Telling Me what To Do.”

We get it. You’ve mastered your logistics processes. You are an expert at getting the best rate from the one LTL shipping carrier you use. Once your company hires a third party logistics company, they will no longer need you….right? No…that is usually not the case. In fact, they can either have you stay more strategic, not bogged down in the weeds of detail and tactics,  and focus on growing the business.

While we all tend to think that we’re good at everything we do, that’s not always the case. More to the point, doing it ourselves generally requires an investment in facilities, equipment, people and time. In many cases, that investment is fixed. Your warehouse doesn’t grow or shrink based on how much space you need at a given time. Your warehouse rent doesn’t change based on how much product you ship, nor does the cost of your forklifts, pallet racking or utilities. Your labor is variable, but only to a point. Most businesses are still going to have a minimum amount of staff, regardless of revenues to handle the tactics and details of freight, transportation procurement, carrier relations for ongoing freight maintenance, and more.

When you use a third party logistics company, you only pay for what you use. When you do move product in or out, you only pay for the freight costs. You’re getting full time people at pro-rated wages. You will also likely benefit from your provider’s economy of scale. Freight and shipping costs will almost certainly be better than what you can secure on your own for the simple fact that your 3PL is moving a lot more product that you are individually. Win, win, win.

Now, this doesn’t mean that a 3PL is right for your company. If you’re in an industry that is very localized or distribution-focused, it may make a lot more sense to do it yourself. Perhaps you are the expert in your field which negates the benefits of outsourcing. There are no absolutes in anything, especially business. When it comes to decisions affecting the future of your company there are usually not even any rules of thumb. Every circumstance is as different as the enterprise that is exploring it. It all comes down to what’s right for your business, your customers and your people. But, it never hurts to at least have a conversation with an expert. If you’d like to explore your logistics options and talk to a third party logistics company by way of a consultation, then reach out to us and schedule a logistics consultation with a Cerasis account executive. Our approach is solutions based and we only like to provide our services if we can solve pain or fix broken process to provide bottom line savings.

What is your experience in using a third party logistics company? Let us know in the comments section below the author bio!